Inflation is at its worst in four decades and the Federal Reserve is raising interest rates every month. A recession is around the corner and stocks have had a terrible year. Russia has invaded Ukraine and that war is likely to drag on indefinitely with sanctions on Russia driving up energy prices, causing food shortages in Asia and Africa, and ensuring a worse recession in the UK than in the USA. However, you have money that you want to put to work and are wondering how to invest $10,000 today in 2022. Bloomberg asked five experts about this. Here is a snapshot of what they said about investing $10,000 and our opinion.
What to Do Before Investing in Stocks, Bonds, or Whatever
If you have credit card debt, pay it off before you put money into the stock market. It generally takes a miracle for a new investor to get a 16% year after year rate of return on their investments but that is the average rate of interest paid on credit card debt. And make sure you have a couple of months of expenses put away in the bank as the last thing you want to do is invest in a stock, see it go down, and not be able to wait for it to recover because you need money right now!
Invest in Growth At a Reasonable Price
This type of investing, AKA GARP, takes the middle ground between growth and value. The Bloomberg contributor says to use the PE ratio divided by the growth rate to find these stocks. One issue with this approach is that stocks in this category tend to slide when inflation goes up. So, you need to believe in the Federal Reserve and their attempts to raise interest rates to stem inflation. If you want to go this route you can put your money in an ETF that tracks such stocks. One of these is the S&P 500 GARP ETF, SPGP.
Start Out With Defensive Investments for Your $10,000
When stocks are likely to fall and interest rates are going up many investors get out of the stock market and into bonds. Because the economic picture is uncertain and inflation could mend itself it a year or two you do not want to get trapped in a long term bond when you would rather be back in stocks. So, stay with time frames of a year or less, gain a little interest, and wait for stock opportunities to arise before heading into stocks. If you are looking for defensive stocks look at utilities and retailers or producers of basic goods that sell in good times and bad. Duke Energy and Procter & Gamble. If you expect the war to last and last think of defense contractors like Lockheed Martin or General Dynamics.
Investing in Hedges Against Inflation
Inflation eats away at the purchasing power of the dollar. Today we have the highest inflation in four decades and progressively higher interest rates. One of the Bloomberg contributors says to put your $10,000 in value stocks. Right now banks look attractive as they are fairly priced and are making more money as rates go up. If you are uncertain about how to pick value stocks consider an ETF like Vanguard’s Value ETF or the iShares Focused Value Factor ETF.
Investing For a Turnaround and the Long Term
The economy and the market run in cycles. Year to date the market has been terrible as supply chain disruptions, the war in Ukraine, inflation, and fear of recession have driven stocks lower and lower. The market will not stay down forever. As we noted in our article about bear markets as a key to future wealth many have profited handsomely by picking stocks with strong intrinsic value whose prices have been driven down by market hysteria. As we recently noted there are dividend stocks that have grown and paid increasing dividends for more than half a century and these stocks both weather the storms of down markets and provide a lifetime of healthy returns on investments.
Understand What You Are Investing In
When beginning to invest it is easy for novices to get carried away with media hype and stock tips. One thing that successful long term investors have in common is that they only invest in companies whose business plan they understand and whose business plan is likely to generate earnings year after year. Until you have found a company that you understand there is nothing wrong with putting your $10,000 in a six month CD in the bank until you know where you are going to invest. Understand your investments from the beginning.
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